To reduce the burden on small taxpayers, Government of India has provided various schemes wherein the person is not required to maintain his books of account or get their books of account audited, in case they have maintained one.
The conditions for non maintenance of books of account or audit of books of account are mentioned under Section 44AB, Section AD and Section 44ADA. We will discuss them in detail one by one.
Section 44AB:- Audit Of Accounts Of Certain Persons Carrying On Business Or Profession Applicability of tax audit
As per the provisions of Section 44AB, following are required to get their books of account audited from a Chartered Accountant:
1. In case of Business
Any person pursuing business and whose total turnover or gross receipts exceed a sum of Rs. 5 crores (applicable from AY 2020-21) in any previous year. However, this provision is not applicable to the persons who opts for presumptive taxation scheme.
Note:
In case, the business turnover does not exceed Rs. 5 crores, then are two additional conditions to be met for non auditing of books of account:
– Aggregate of all amount received in cash (including cash sales) does not exceed 5% of said amount, and;
– Aggregate of all payments made (including cash expense) does not exceed 5% of said amount.
With effect from 1st April 2021, the threshold limit for applicability of tax audit is increased to Rs 10 crore in case cash transactions do not exceed 5% of the total transactions. (i.e., Cash receipts/payments does not exceed 5% of the total receipts/total payments)
2. In case of profession
Any person pursuing a profession and whose gross profits exceed 50 lacs in any previous year. (From FY 2023-24, the new limit is Rs. 75 lacs if 95% of the receipts are through online modes).
3. A person who is considered eligible for the presumptive taxation scheme. In addition, who claims that the profits and gains for the respective business is lower than what is computed. Moreover, it is accordance with the presumptive taxation scheme and his/her income exceeds the amount that is taxable.
Note:
If person has opted for Section 44AB, then he has to maintain it for next continuous 5 assessment years. In case he opts out from this section, then he will not be allowed to opt this section again for the next 5 Assessment Years. Further, for these next 5 assessment years he is required to maintain his books and get them audited, if the profit is more than basic exemption limit of 2.5 lacs / 3 lacs / 5 lacs under the Old Tax Regime and Rs. 2.5 lacs under the New Tax Regime irrespective of the turnover.
Also Read: Know All About Presumptive Taxation Scheme
Section 44AD: Special provision for computing profits and gains of business on presumptive basis
As per the provisions of Section 44AD, following conditions must be met for non auditing of books of account
– The person must be Resident Individual / HUF / Partnership Firm (not LLP)
– The must be the one apart from covered under Section 44AE, Agency, Commission or brokerage.
– The turnover should not exceed Rs. 2 crore in any previous year. (From FY 2023-24, the new limit is Rs. 3 crore, if 95% of the receipts are through online mode).
If all above conditions are satisfied then assessee can declare estimated income from business:-
@ 8% of total turnover or more.
Provided, if amount of sale consideration is received by any other mode than cash (banking channel). In addition, income is presumed to be @ 6% of total turnover or higher as declared by assessee.
Following persons are outside the purview of Section 44AD and have to get their books of account audited:
– Non Resident:-Individual/HUF/Partnership firm
– Company/LLP/BOI /AOP
– Assessee who has claimed deductions u/s 10A/10AA/10B/10BA. Furthermore, deduction in respect of certain incomes under chapter VIA in relevant previous year.
Also Read: Do I need to file Income Tax Return?
Section 44ADA:- Special provision for computing profits and gains of profession on presumptive basis
Just like businesses, the professionals are also required to maintain their books of account and get them audited, if required by the law. However, Section 44ADA provides certain conditions wherein the professionals are not required to get their books of account audited. And, they are as follows:
– The professional must be Resident Individual / HUF / Partnership Firm (not LLP)
– The profession must be the one as referred under Section 44 ADA viz Medical/ Legal/ Engineering/ Architect/ Accountancy/ Technical Consultancy/ Interior Decoration/ Authorized Representation/ Film Artist/ Company Secretory etc.
– Total gross receipts does not exceed Rs 50 Lakhs in Previous Year.
If all above conditions are satisfied then assessee can declare estimated income. Furthermore, this income is from business @ 50% of total gross receipts or more.
Following persons are outside the ambit of Section 44ADA
– Non Resident: Individual/HUF/Partnership Firm.
– Gross receipts exceed Rs. 50 Lakhs.
– Engaged in professional other than specified profession. In addition, you can understand with e.g. person engaged in the profession of teaching.
Illustration
Assessee is having a single business or profession
Parvati is a fashion designer and runs a boutique and has earning of Rs. 10,00,000 for FY 2024-2025. Further, to run the boutique, she has the following expenses:
Salary to staff: Rs. 2,00,000
Rent of boutique: Rs. 1,50,000
Travel expenses: Rs. 1,00,000
Repair and maintenance of machine: Rs. 1,50,000
The computation of Parvati’s income from business are as follows:
| Particulars | Amount |
|---|---|
| Gross Receipts | Rs. 10,00,000 |
| Less: Expenses | |
| Salary to staff | (Rs. 2,00,000) |
| Rent of boutique | (Rs. 1,50,000) |
| Travel expenses | (Rs. 1,00,000) |
| Repair & maintenance of machines | (Rs. 1,50,000) |
| Net Income | Rs. 4,00,000 |
Since, Parvati is having net income of less than Rs. 5,00,000 she will be eligible to claim a tax rebate. Hence, she will have no tax liability
Assessee is having Professional Income
Rajesh is a practising lawyer and has an earning of Rs. 30,00,000. His expenses for the same are Rs. 3,00,000.
The computation of Rajesh’s tax liability is as follows:
| Particulars | Amount |
|---|---|
| Gross Receipts | Rs. 30,00,000 |
| Expenses |
Rs. 15,00,000 (50% of income can be claimed as expenses) |
| Taxable income | Rs. 15,00,000 |
| Tax liability | Rs. 2,62,500 |
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